I haven't seen it happen personally, but I have heard of it happening to a few others. What variety of Nature's Instinct is he on? If it is chicken or turkey, I'd switch him to a red meat right away. Not sure what they have... beef? Lamb? Venison? Pork? Any of those.
Some new raw feeders talk about a "de-toxing" period that their dogs go through. They can get greasy fur, lose fur, dandruff, etc. Supposedly it is the skin/coat and body going through a detoxification and that manifests through coat/skin. Once the old hair is gone, a new healthy coat grows in and is very luxurious and full. That is second hand information though, I haven't seen that happen myself.
I would give him a warm bath and really scrub him and massage that skin and get all of that dead skin/coat out. Use a high quality shampoo and conditioner. I'd also add in some coconut oil. You can use it topically as well as orally.
Let us know how he is doing! I will be following this thread.